The discussions were prompted by severe price dislocations observed on Upbit, one of South Korea’s leading digital asset exchanges, after it listed JPYC, a stablecoin pegged to the value of the Japanese yen. When trading for the token opened on September 17, the market kicked off at approximately 12 Korean won per JPYC. Within a remarkably short span of just one hour, the asset skyrocketed to a high of 37.6 Korean won, surging to more than four times its intended market value and true peg. Industry observers and analysts quickly attributed the dramatic price spike to extremely limited initial liquidity on the exchange platform.
Speaking at a conference in Seoul on Monday, Yoo Young-joon, the director of digital finance policy at the FSC, addressed the incident and its broader regulatory implications. According to local reports from the outlet Digital Asset, Yoo stated that the commission will review the necessity of introducing systems such as formal market-making activities to enhance both the efficiency and the overall stability of the domestic digital asset landscape. He further acknowledged that there had been widespread public criticism regarding user losses resulting from the sudden price surge following the JPYC listing, noting that demands for regulatory discipline and structural safeguards in this area are steadily expanding.
Under South Korea’s current legislative framework, specifically the Virtual Asset User Protection Act, there is no explicit carve-out or exemption for market-making activities from broader statutory market manipulation provisions. Consequently, professional market makers have been legally prevented from operating freely to provide necessary liquidity and stabilize order books in domestic crypto markets. Yoo’s recent remarks suggest that the FSC may be actively rethinking this rigid stance as policymakers grapple with the structural vulnerabilities exposed by low-liquidity token listings.
The question of whether to permit crypto market-making has long been a subject of intense debate among South Korean academics, legal scholars, and financial researchers. In a peer-reviewed paper published in 2024 in the Seoul Law Review, KB Securities researcher Lee Min Jung examined the regulatory landscape and explained that financial authorities previously chose to prohibit crypto market-making due to fears that such activities could easily be misconstrued as, or evolve into, illegal market manipulation. While Lee argued at the time that introducing formal market makers might still be premature given the persistent risks of manipulation, she suggested that regulators could eventually reevaluate the position and consider a statutory carve-out once the market achieves a greater degree of underlying maturity and stability.
Academic warnings concerning the lack of a formal market-making infrastructure predate the recent JPYC episode by a considerable margin. Prior research conducted by Yoonyoung Choi at the Korbit Research Center pointed out that South Korea’s domestic cryptocurrency market has frequently suffered from severe liquidity bottlenecks stemming entirely from the absence of a regulated market maker system. Choi’s paper emphasized that these liquidity deficits inevitably give rise to persistent price discrepancies, abnormal volatility, and structural inefficiencies—citing the well-known "Kimchi premium," where crypto assets trade at higher prices on domestic exchanges compared to global markets, as a prime historical example of these systemic flaws.
The potential introduction of a market-making framework unfolds as South Korea continues its broader, methodical efforts to construct a comprehensive regulatory framework for its entire digital asset industry. Earlier in July, the FSC announced its intention to introduce a consolidated Digital Asset Basic Act designed to establish overarching rules for stablecoins, digital asset businesses, centralized exchanges, mandatory disclosures, and internal corporate controls. Despite these forward-looking policy goals, lawmakers in Seoul have yet to finalize several critical components of the proposed legislation, including specific regulatory guidelines and compliance mandates governing the issuance of won-denominated stablecoins. As regulatory deliberations continue, the recent volatility surrounding foreign-pegged stablecoins like JPYC has underscored the urgent need for structural market reforms to protect retail investors and ensure orderly trading conditions across South Korea’s digital asset exchanges.
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